Sorry dudes. Just heard it first hand from Brian Seitz, Group Manager of Zune: "No Zune phone…
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Asked if Microsoft would counter with a "Zune Phone", Mr Ballmer said: "You should not anticipate that." He added that the company would stick to its strategy of developing software to support a range of mobile devices. That suggests that, if there is a future for Zune, it lies in planting the software and online service linked to the player in other devices.

Ballmer believes that software is what Microsoft does best, so they need to put that software in as many third-party devices as possible, rather than focusing on their own dedicated music device, a market that he believes is declining. [Financial Times via Alley Insider]